Family of Chinese regulator profited from insurer’s stock

WEB OF TIES:Analysts said the investments made by relatives of a former central bank head raised more doubts about capital market oversight

NY Times News Service, SHANGHAI

The businessman “could not afford what he has created, so he had to sell his shares all at once,” Lau wrote in the e-mail.

However, the corporate records reviewed by the Times show that Che, his relatives and longtime business associates had set up a complex web of companies that effectively gave him and the others control of Dinghe Venture Capital, the company that made the investments in Ping An and Haitong Securities.

The records show that Che was later nominated by one of the companies to serve on the Ping An board of supervisors. His term on the board ran from 2006 to 2009.

The Times last month reported that another investment company also bought shares in Ping An Insurance in 2002, on the same day as Dinghe Venture Capital. That company, Tianjin Taihong (天津泰鴻), was later partly controlled by relatives of Chinese Prime Minister Wen Jiabao (溫家寶), who was then serving as vice premier with oversight of financial institutions.

In late 2007, the shares Taihong bought in Ping An were valued at US$3.7 billion.

The deals involving Dinghe and Taihong are significant in part because by late 2002, Beijing regulators had granted Ping An an unusual waiver to rules that would have forced the insurer to sell off some divisions. Throughout the late 1990s, the company had been fighting rules that would have required a breakup, a move that Ping An executives worried could lead to bankruptcy.

It is unclear whether Wen or Dai intervened on behalf of Ping An, but in April 2002 the company was allowed to reorganize and retain its brokerage and trust division.

Two years later, Ping An sold shares to the public for the first time in Hong Kong. In 2007, after a second stock listing in Shanghai, the value of the company’s shares skyrocketed. Today, Ping An is one of the world’s biggest financial institutions, worth an estimated US$65 billion.

The decision to grant the waiver came after Ping An executives and the insurer’s bankers had aggressively lobbied regulators, including Dai.

The Times reviewed copies of letters written to Dai. In one, Ping An chairman Ma Mingzhe (馬明哲) pleads with Dai to approve an overseas stock offering in 1998, saying: “It would be rather difficult to raise such a huge amount of money in the domestic market.”

The regulatory filings show that Dinghe, the company partly controlled by Dai’s relatives, got an extremely good deal on the shares of Ping An that it purchased.

In December 2002, Dinghe bought 66.5 million shares from Cosco (中國遠洋), a Chinese state-owned shipping giant, paying about US$0.40 a share after adjusting for a later stock split. It was the same price paid by Taihong, the company affiliated with the relatives of Wen. The price was much lower than what the British bank HSBC paid for a 10 percent stake in Ping An in October of the same year. HSBC paid what at today’s exchange rates would be US$1.60 a share.

It is unclear why Cosco would have sold shares at such a substantial discount. The company did not return calls seeking comment.

Dai, 68, has had a long career as a government regulator and as an executive at state-owned companies. He has held high-level positions at the Agricultural Bank of China (中國農業銀行), China Pacific Insurance (中國太平洋保險) and, in the early 1990s, at the Bank of Communications (交通銀行), where he oversaw Haitong Securities, the bank’s brokerage division.